JGB futures hit 2-month low on stocks, auction eyed
TOKYO, Feb 26 (Reuters) - Japanese government bond futures fell to a two-month low on Tuesday as Tokyo shares rose on relief that the biggest U.S. bond insurers will keep their top-notch credit ratings, sparking selling of safe-haven government debt.
The benchmark 10-year yield struck a two-month high as JGBs tracked the slide in U.S. Treasuries after Standard and Poor's removed its threat of an imminent downgrade to MBIA's credit ratings and affirmed Ambac's top-notch grade. [ID:nN25257997]
"It is certainly big news and creates a feeling that further fallout from the credit market turmoil can be avoided, at least in the near term," said the head of derivatives trading at a Japanese securities house.
March 10-year futures dipped 0.10 point to 137.05 2JGBv1 and fell as far as 136.89, the lowest since late December.
But investors were cautious about selling JGBs too much, seeing the good news on the bond insurers as only a short-term boost to sentiment as many worry about a U.S. economic recession.
JGBs trimmed earlier losses as investors took advantage of the rise in yields to allocate funds to the market, getting their portfolios in shape for the end of the current business year in March.
Investors are turning their focus on a result of the 20-year JGB auction due at 0345 GMT.
The benchmark 10-year yield rose a basis point to 1.495 percent JP10YTN=JBTC after hitting a two-month high of 1.500 percent, a level that analysts said would attract demand from investors seeking higher yields.
The Nikkei share average climbed 0.5 percent .N225 after rising about 1 percent to a six-week high in early trade.
AUCTION IN FOCUS
The Ministry of Finance offered 800 billion yen ($7.4 billion) in 20-year bonds with a coupon of 2.1 percent, as widely expected.
The coupon on the 20-year bond has been unchanged at the past four monthly auctions of the maturity, with the MOF reopening the No. 99 issue for a second time.
The yield of the 20-year bond was up 1.5 basis points at 2.135 percent JP20YTN=JBTC, hitting a one-month high as dealers sold the bonds to lighten positions before the auction.
Analysts expect the sale to go smoothly due to demand from investors such as public entities and pension funds, which set aside a certain amount of funds each month for fresh purchases of longer-dated bonds.
Life insurers were seen as likely buyers of the super-long sector to allocate funds before the fiscal year-end, traders said.
The five-year yield inched up 0.5 basis point to 0.965 percent JP5YTN=JBTC and matched a two-month peak of 0.970 percent.
The two-year yield rose a basis point to 0.615 percent JP2YTN=JBTC.
(Editing by Eric Burroughs)
